Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures, with Zscaler (ZS) and DocuSign (DOCU) among the notable earnings report. The stock market rally was up and down on Thursday, ultimately closing near session highs, setting up a big test of their 50-day moving averages.
But while these five stocks are leading the market, they are not independent from it. NBIX stock and Vertex were still actionable at the close, but came off intraday highs as the indexes whipsawed off their best levels. Centene stock backed off, and may need a little more strength. BMRN stock showed strong action, closing high in the day’s range, but in light volume. Only AXNX stock closed with a truly strong advance, and that came on news of an Axonics product milestone.
On the downside, Apple (AAPL) retreated a day after edging higher on the new iPhone 14 and other products. Megacaps are lagging in the current market environment, with all trading below their 200-day moving averages. Tesla (TSLA) is the only way making a real move toward the 200-day right now.
After the market close, cybersecurity firm Zscaler and documents software specialist DocuSign reported better-than-expected quarterly results and gave solid guidance. ZS stock popped overnight, while DOCU stock soared. The former leaders are far below highs and nowhere near actionable, but the reports are a good sign for software stocks and IT spending.
Dow Jones Futures Today
Dow Jones futures climbed 0.2% vs. fair value. S&P 500 futures rose 0.2%. Nasdaq 100 futures advanced 0.4%.
The 10-year Treasury yield climbed 3 basis points to 3.32%.
Stock Market Rally
The stock market rally had an up-and-down session, selling off near the open, rebounding for solid gains, and going back and forth before finally advancing with decent gains after Wednesday’s strong rebound.
Just before the market open, Fed chief Jerome Powell reiterated that he is “strongly committed” to fighting inflation, reinforcing expectations for a third straight 75-basis-point rate hike on Sept. 21. Shortly before that, the European Central Bank raised its key rate by 75 basis points. Later on, ECB sources hinted that another 75 basis points could come in October.
Meanwhile, initial jobless claims defied forecasts, falling for a fourth straight week, sending yet another signal to Fed chief Powell that labor markets are still very tight.
The Dow Jones Industrial Average and Nasdaq composite rose 0.6% in Thursday’s stock market trading. The S&P 500 index gained 0.7%. The small-cap Russell 2000 led with a 0.8% advance.
U.S. crude oil prices rose 2% to $83,54 a barrel after tumbling to their lowest levels since January on Wednesday.
The 10-year Treasury yield climbed 3 basis points to 3.29%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.5%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 1%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) climbed 1.4%.
SPDR S&P Metals & Mining ETF (XME) edged up 0.6%. The Energy Select SPDR ETF (XLE) advanced 0.4% and the Financial Select SPDR ETF (XLF) 1.8%. The Health Care Select Sector SPDR Fund (XLV) gained 1.7%. CNC stock and Vertex are XLV components.
Apple stock fell 1% to 154.45 on Thursday. Shares hit their lowest levels since late July. The relative strength line is now quickly declining after record highs as recently as Aug. 17. As the most-valuable U.S.-listed company and a member of the Dow Jones, S&P 500 and Nasdaq composite, if AAPL stock is declining, it’s hard for the major indexes to make much headway. The other megacap stocks also are struggling.
Tesla stock is a partial exception to the megacap malaise, rising nearly 2% to 289.26. It’s now up 7% this week, rebounding from its 50-day moving average. But this week’s gains have come in weak volume. And TSLA stock remains below its declining 200-day line. A decisive move above the 200-day line, perhaps clearing the 300 level or the Aug. 14 high of 314.64, would offer an early entry.
Market Rally Analysis
The stock market rally shrugged off early solid losses, unwilling to give up Wednesday’s big gains. Despite some numerous swings intraday, the major indexes all closed near session highs.
After appearing to hit resistance at their morning highs, the S&P 500 and Russell 2000 finished just below their 50-day moving averages. Keeping in mind that the S&P 500 came within one point of its 200-day line on Aug. 16 — with the small-cap Russell just above the level — marking the top of the current rally. On Sept. 2, the S&P 500 and Russell 2000 touched their 50-day line and then reversed hard.
So the 50-day moving average isn’t just a line on a chart. Moving decisively above that level would be a bullish sign. Note that the 21-day moving average is racing down toward the 50-day for all the key indexes.
Above those lines, a market rally might have a little room to run, but the 200-day average would be the ultimate test.
Investors should follow the market primarily by the major indexes and leading stocks. In recent days, leading stocks have looked better than the major indexes.
But Neurocrine, Centene and Vertex came off highs as the market initially hit resistance, even with the Nasdaq, S&P 500 and Dow Jones closing near Thursday’s best levels. If the major indexes head south again, most stocks will follow suit.
Solar and pollution control stocks are doing well. So are a wide variety of medical names from the biotech, products/systems and health insurers. Lithium plays are running hot, but volatile charts make them hard to handle.
A few tech names setting up but generally aren’t flashing buy signals yet. But continued market strength could see techs triggering buy points, along with stocks from a variety of sectors.
It’s OK if megacap stocks like Apple aren’t leading a market uptrend, but it would be healthy for some of them to be actively participating.
What To Do Now
More stocks are flashing buy signals, at least intraday. So it’s understandable if investors chose to nibble on some new positions, aiming to get an early ticket on some big runs.
Remember that with the major indexes so close to their 50-day lines, taking on a new position becomes even riskier — unless and until the major indexes decisively break higher. So consider taking small positions, at least to start, and be ready to take quick profits and cut losses ruthlessly.
If you pass on taking new positions for now, there will be other buying opportunities if the market gains momentum. A large number of stocks are close to being actionable, or close to being close.
So work on your watchlists. Stay alert and be nimble.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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